Gold prices fell on Monday as risk-on sentiment, bolstered by the upcoming signing of a preliminary U.S.-China deal and signs of de-escalation in the Middle East, dampened demand for safe-haven bullion.
Spot gold fell 0.8% to $1,549.50 per ounce, having fallen 1% to $1,546.27 earlier in the session. U.S. gold futures settled down 0.6% at $1550.60.
"You remove the risk of geo-political tensions rising and you don't quite need gold to beef up your portfolio," said Bart Melek, head of commodity strategies at TD Securities.
Stock markets around the world lingered just below record levels, buoyed by the expected signing of the Phase 1 U.S.-China trade deal. The trade agreement, due to be signed at the White House on Wednesday, marks the first step towards ending an 18-month-long trade dispute between the world's two largest economies.
The U.S. dollar also rose against a basket of rivals, making bullion more expensive for holders of other currencies. Signaling a further ramp down of trade tensions, a Wall Street Journal report said on Saturday that Washington and Beijing had agreed to semi-annual talks aimed at pushing reforms and resolving disputes.
Gold, considered a safe investment during political and economic turmoil, rose to a near seven-year peak of $1,610.90 last week after a U.S. drone strike killed a top Iranian commander in Baghdad and Iran launched missiles against U.S. bases in Iraq in retaliation.
The rally, however, faded with a lack of further military escalation in the region. Markets will still keep an eye on tensions with Iran over the accidental shooting of a passenger plane, and the finer points of the implementation of the U.S.-China deal, analysts said.
Reflecting investor sentiment, holdings of the world's largest gold-backed exchange-traded fund, SPDR Gold Trust, fell 0.9% to 874.52 tonnes on Friday, their lowest since Sept. 16.
"Gold will remain vulnerable to spikes but could trend lower in the interim, with a break of $1,540 potentially triggering a move back towards $1,520," OANDA analyst Craig Erlam said in a note.
Elsewhere, palladium rose 0.6% to $2,129.23 an ounce. Silver was down 0.6% at $17.98, while platinum fell 0.4% to $974.65.